Climate change: assessing your risk

Some of the climate change headlines from the past few months have made for alarming reading. Examples include the northern hemisphere breaking records for the hottest summer ever recorded, and reports on how rising temperatures have shrunk Arctic sea ice to the second-lowest level on record. 

For Prudential Regulation Authority (PRA)-regulated firms, Supervisory Statement 3/19 ?Enhancing banks and insurers? approaches to managing the financial risks from climate change? and the 1 July 2020 ?Dear CEO? letter set out expectations in respect of firms incorporating the risks from climate change into their existing risk management practices. It also considers the use of scenario analysis to inform strategy setting, in addition to risk identification and assessment.

When assessing risk of this nature, a good starting point is the UKCP18. Produced by the Meteorological Office, it provides a set of climate change projections and tools, including Representative Concentration Pathway (RCP) scenarios - a standard metric for measuring global greenhouse gas concentrations. 

The UKCP18 includes observations of the weather and climate for today and also projections that estimate outcomes based on future climate scenarios.

The report offers a raft of intelligence and modelled data that examines the changes that may be brought by an evolving climate. It enables government and local authorities, as well as public and private sector organisations, to understand the potential climate-related outcomes and to make alterations and adjustments.  

UKCP18 provides monthly weather predictions for the high-emission climate change scenario known as RCP8.5; up to 2080 for each 12 km grid square of the UK. Two key elements have been derived from the UKCP18 forecasts: Extreme Low Summer Precipitation, which leads to more subsidence and Extreme High Winter Precipitation which leads to more floods.

We can expect hotter, drier summers and warmer, wetter winters based on current projections, both of which help to increase the risk of subsidence and flooding. In addition, rising sea-levels and increased storm surge are likely to increase coastal erosion rates.

Modelling your climate change risk

The first step towards determining the risk to your organisation is to agree your risk modelling methodology. We recommend using the individual Unique Property Reference Number (UPRN) for all properties within mortgage books and geocoding all addresses to firstly assess exact locations. Property risk can vary greatly between neighbouring properties so a postcode-level analysis is unlikely to be adequate.

The next phase is to consider which physical and transitional perils should be assessed as part of your report to the PRA. While flood risk is often considered a primary risk, other perils should not be dismissed.

We believe that the following risks should be factored into any reporting:

  • Flood
  • Subsidence
  • Coastal erosion
  • Energy Efficiency policy change
  • Demographic and economic impacts

Having decided on which risks should be interrogated, the next step is to assess what impact these risks may have on property values, based on various future-facing climate change scenarios.  

To provide an example, we created a random sample of 200,000 UK properties as a research exercise, matching addresses to AddressBase to access each UPRN, and then ran data to understand the link between climate-related risks and property values.

Assessing the sample data against the high-emission rating of RCP8.5, we calculated that the anticipated number of properties to be impacted by a significant flood in a ten-year term increases to 1,142 properties in the 2050s, a jump from 971 properties in the 2020s.  

We then calculated the potential value impairment related to the increase in significant flood events and identified that this increased by more than three times as much to £23,728,339 in the 2050s, compared to £6,504,052 in the 2020s.

The outcome of this modelling shows that by analysing existing mortgage book data and future applications with scenario analysis based on reliable data sources, lenders have a clearer understanding of the potential impact and severity external perils may have (both now and in the long term). This in turn helps support the PRA's climate-related reporting obligations.

Landmark Valuation Services? Climate Change Portfolio Assessment report provides a bespoke insight on an array of perils and will demonstrate to the PRA that reasonable steps have been taken to understand what the future impacts may look like and how it is factored into your risk management and loss modelling processes.

For more information regarding the Landmark Valuation Services Climate Change Risk Assessment service, contact Jayne Coppinger via email: or visit


Sustainability is a priority for UK Finance and as part of this we understand the need for firms to appraise the training and development support that many of their employees across the business will need. As a contribution to this, UK Finance is pleased to partner with Finance Unlocked to offer their ESG Learning Pathway (50% off), but also with the Chartered Banker Institute in distributing their Certificate in Green and Sustainable Finance (30 per cent discount for UK Finance members)